Friday, 5 August 2011

You're in the store trying on a stunning but outrageously priced shirt. You have to have them, and your hand has already palmed your debit card--but wait! Did your mortgage payment clear your money market account yet?

You could whip out your smart phone and check your balance using your bank's app, and maybe make a quick transfer between accounts. If you access your bank account information on your mobile phone, are you jeopardizing the security of your checking and savings accounts ?

No, you're not, says Phil Blank, managing director of security, risk and fraud at Javelin Strategy and Research--not as long as you exercise some basic online street smarts.

"All you need to do is use a little common sense," Blank says.

Consumers worried about mobile banking securityIf you think twice before accessing banking information on your smart phone, you're not alone. Even though smart phone adoption has jumped, more consumers with mobile banking capabilities are concerned that sharing personal financial information on their phones will open themselves to hacking and fraudulent activity.

According to a 2010 Javelin survey, about 40 percent of smart phone owners said mobile banking made them nervous--up dramatically from 26 percent in 2009.

"It's very clear to us that people are saying, 'I am nervous about using my smart phone to bank,'" Blank says.

In Blank's estimation, financial institutions must address this perception quickly, or else many consumers will never take advantage of mobile banking.

Banks: We've made mobile banking safeMarc Warshawsky, senior vice president of mobile channel planning and design at Bank of America, says its customers have no reason to worry about their financial information being stolen--whether they're using their computer or their smart phone to bank.

"We've taken the necessary steps to minimize any risk to their accounts, whether they access them on their mobile phone or from their computers," he says.

Besides, Warshawsky says, should something happen and their phones are hacked, customers of Bank of America would be protected by its zero-liability guarantee. "They would not be responsible for any unauthorized charges to their debit cards, credit cards or accounts," he says.

Smart banking on your smart phoneIf you're still unsure, here's what Blank and Warshawsky say you need to do to be sure the transactions you make using your smart phones are safe:

Do…
Stick to your bank's apps for mobile banking or trusted, well-reviewed third-party personal finance apps. Download them directly from the app store for your phone's type--iPhone, Android, etc.
Treat your smart phone as if it's a PC. "I really hate the term 'smart phone,'" Blank says, "because what it really is is a PC that happens to make phone calls. If you look at your phone that way, you're minimizing your risks." For instance, install antivirus software on your phone as you would your PC.
Monitor the whereabouts of your phone. One big difference between your phone and your desktop computer is that the latter is much less likely to fall out of your pocket or purse. Check every so often to make sure your smart phone is on you when you're out and about.
Don't…
Use public Wi-Fi access to conduct your banking business. You can't be sure they're secure, Blank says. Opt for wireless networks that require a network security key or have some other form of security.
Be the first in line to use your bank's new app. "Wait until it's been about 30 to 40 days and then go and download it," Blank advises. The reason? Sometimes early versions of apps contain malware or are not safe.
Leave the keys in plain sight. Never send a text message on your phone containing sensitive information such as your Social Security number or checking account and savings accounts numbers or even your passwords to log into them. "We don't give the customer the option to store anything sensitive on their phones," Warshawsky says. "That's for their own protection."
Be fooled by emails or text messages asking for personal information. Often, these "phishing" messages claim to be from your bank and ask for personal information or ask you to click on certain links to update account information. "We would never ask you to provide your ID or password over digital communications," Warshawsky says. You should also avoid visiting any websites that you don't know anything about.
Using your phone to bank on the go can be a great convenience. As long as you're smart about it, says Blank, there's no reason you shouldn't access your bank accounts through your smart phone.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

When people near retirement they often wonder how much, if any, life insurance they should have during retirement. When you are working and have financial obligations such as a mortgage, college funding, etc., you have a need for higher levels of insurance. In retirement, people often figure they don't have to worry about replacing lost income; therefore, the need for life insurance is non-existent. However, this may not always be the case.

Generally, there are two main uses for life insurance in retirement: to replace lost income or to pay estate tax upon death. For instance, you may still have dependents that need your Social Security or pension income and would suffer a financial hardship in the event of your death. When it comes to estate planning, life insurance is often used to pay estate taxes rather than forcing heirs to liquidate other assets. To determine whether insurance in retirement would be necessary, you should start by asking yourself, "Will someone suffer a financial hardship if I die?" Remember, this "someone" could be a spouse, significant other or even a child. If the answer is yes, then you need to protect your assets or income stream. If no, then life insurance may not be necessary. Once you figure out if you do in fact need it, then it's important to consider how much you may need.

For retirees who receive a pension, the highest benefit is generally paid for a "life only" or single life payout. While this provides a higher retirement income than a joint-life annuity, the benefit stops upon your death. In this case, life insurance would be purchased to replace the lost pension benefit for the surviving spouse or other dependents. A strategy called Pension Maximization can help. This involves using the additional income you receive by choosing the single life annuity over the joint life annuity to pay for life insurance premiums. Since life insurance costs are based on age and health status, it is important to balance the higher income with potentially higher life insurance premiums if you have health problems.

For example, a retiree could choose between the following:

Option 1: Pension of $5,000 per month with no survivor benefit
Option 2: Pension of $4,800 with a 50 percent survivor benefit (Survivor would receive $2,400 per month)
Option 3: Pension of $4,500 with a 100 percent survivor benefit (Survivor will continue to receive $4,800 per month)
In this case, Pension Maximization means you choose option 1. The $500 per month additional income benefit is used to purchase enough life insurance to replace the lost pension of $4,500 per month. If the insurance will not do this, then the retiree may be better off choosing a lower payment and leaving the survivor benefit. (The above is an example of how this works and the numbers used are for illustrative purposes only.)

In the case of Social Security, if one spouse dies, the surviving spouse is entitled to the higher Social Security of the two. In other words, one check stops coming in. This loss of income may be a burden for the survivor. Purchasing life insurance on each spouse will provide death protection to replace the lost Social Security income.

Finally, when it comes to estate planning, under the current estate tax laws, most people will avoid having to pay estate taxes. You must keep in mind though that the current laws are scheduled to change in the near future and depending upon what direction Congress takes with the estate tax, you could find your estate exposed to higher taxes. Also, in some cases where your estate is made up of illiquid assets such as a business or real estate, you would not want to have to put your heirs in a position to having to sell the assets. This is where life insurance can provide much needed liquidity.

As for types of life insurance to buy, the choices can be confusing. One thing for sure is that Term Insurance is not appropriate for retirement due to the fact that this type of insurance usually ends between the ages of 70-75. Since life insurance needs in retirement are usually permanent, consider policies such as Whole life, Variable life, Universal life or Second to die (insures two and payable after the death of the second) to name a few. There are other permanent life insurance policies you may consider as well.

You need to carefully evaluate your needs and the cost for protecting those needs. Have a financial planner run the numbers. Only then can you make the right decision about whether life insurance in retirement is necessary for you.

FPA member Scott M. Kahan, CFP®, is president and founder of Financial Asset Management Corp . in New York City.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

When people near retirement they often wonder how much, if any, life insurance they should have during retirement. When you are working and have financial obligations such as a mortgage, college funding, etc., you have a need for higher levels of insurance. In retirement, people often figure they don't have to worry about replacing lost income; therefore, the need for life insurance is non-existent. However, this may not always be the case.

Generally, there are two main uses for life insurance in retirement: to replace lost income or to pay estate tax upon death. For instance, you may still have dependents that need your Social Security or pension income and would suffer a financial hardship in the event of your death. When it comes to estate planning, life insurance is often used to pay estate taxes rather than forcing heirs to liquidate other assets. To determine whether insurance in retirement would be necessary, you should start by asking yourself, "Will someone suffer a financial hardship if I die?" Remember, this "someone" could be a spouse, significant other or even a child. If the answer is yes, then you need to protect your assets or income stream. If no, then life insurance may not be necessary. Once you figure out if you do in fact need it, then it's important to consider how much you may need.

For retirees who receive a pension, the highest benefit is generally paid for a "life only" or single life payout. While this provides a higher retirement income than a joint-life annuity, the benefit stops upon your death. In this case, life insurance would be purchased to replace the lost pension benefit for the surviving spouse or other dependents. A strategy called Pension Maximization can help. This involves using the additional income you receive by choosing the single life annuity over the joint life annuity to pay for life insurance premiums. Since life insurance costs are based on age and health status, it is important to balance the higher income with potentially higher life insurance premiums if you have health problems.

For example, a retiree could choose between the following:

Option 1: Pension of $5,000 per month with no survivor benefit
Option 2: Pension of $4,800 with a 50 percent survivor benefit (Survivor would receive $2,400 per month)
Option 3: Pension of $4,500 with a 100 percent survivor benefit (Survivor will continue to receive $4,800 per month)
In this case, Pension Maximization means you choose option 1. The $500 per month additional income benefit is used to purchase enough life insurance to replace the lost pension of $4,500 per month. If the insurance will not do this, then the retiree may be better off choosing a lower payment and leaving the survivor benefit. (The above is an example of how this works and the numbers used are for illustrative purposes only.)

In the case of Social Security, if one spouse dies, the surviving spouse is entitled to the higher Social Security of the two. In other words, one check stops coming in. This loss of income may be a burden for the survivor. Purchasing life insurance on each spouse will provide death protection to replace the lost Social Security income.

Finally, when it comes to estate planning, under the current estate tax laws, most people will avoid having to pay estate taxes. You must keep in mind though that the current laws are scheduled to change in the near future and depending upon what direction Congress takes with the estate tax, you could find your estate exposed to higher taxes. Also, in some cases where your estate is made up of illiquid assets such as a business or real estate, you would not want to have to put your heirs in a position to having to sell the assets. This is where life insurance can provide much needed liquidity.

As for types of life insurance to buy, the choices can be confusing. One thing for sure is that Term Insurance is not appropriate for retirement due to the fact that this type of insurance usually ends between the ages of 70-75. Since life insurance needs in retirement are usually permanent, consider policies such as Whole life, Variable life, Universal life or Second to die (insures two and payable after the death of the second) to name a few. There are other permanent life insurance policies you may consider as well.

You need to carefully evaluate your needs and the cost for protecting those needs. Have a financial planner run the numbers. Only then can you make the right decision about whether life insurance in retirement is necessary for you.

FPA member Scott M. Kahan, CFP®, is president and founder of Financial Asset Management Corp . in New York City.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

When a stock such as Apple (Nasdaaq: AAPL) or Chipotle Mexican Grill (NYSE: CMG ) is universally loved, you should think twice about buying in, lest you arrive as the euphoria starts to fade. Instead, look for stocks that aren't being chased by the crowd. These stocks often hit a rough stretch, get shunned by many growth and momentum investors and soon find themselves being valued at a fraction of their former highs.

In this unforgiving market, there's no shortage of lagging stocks. Some deserve to be shunned because business is likely to remain lousy, valuations don't look attractive -- even after a big sell-off -- and few catalysts are in place for a rebound. But I've developed a list of stocks that should hold appeal. They've all fallen more than 50% from the 52-week high, are expected to post rebounding results in 2012, and most importantly, now trade for less than 10 times projected 2012 profits. Not only do these stocks possess considerable upside when business rebounds, but they also offer more downside protection if the market falls even lower, thanks to those low price-to-earnings ( P/E ) ratios.

When a stock such as Apple (Nasdaaq: AAPL) or Chipotle Mexican Grill (NYSE: CMG ) is universally loved, you should think twice about buying in, lest you arrive as the euphoria starts to fade. Instead, look for stocks that aren't being chased by the crowd. These stocks often hit a rough stretch, get shunned by many growth and momentum investors and soon find themselves being valued at a fraction of their former highs.

In this unforgiving market, there's no shortage of lagging stocks. Some deserve to be shunned because business is likely to remain lousy, valuations don't look attractive -- even after a big sell-off -- and few catalysts are in place for a rebound. But I've developed a list of stocks that should hold appeal. They've all fallen more than 50% from the 52-week high, are expected to post rebounding results in 2012, and most importantly, now trade for less than 10 times projected 2012 profits. Not only do these stocks possess considerable upside when business rebounds, but they also offer more downside protection if the market falls even lower, thanks to those low price-to-earnings ( P/E ) ratios.

Forexpros - The Japanese yen advanced against the U.S. dollar Friday, as recent yen-weakening moves by the Bank of Japan failed to reverse a wider trend of upward momentum in the Japanese currency.

In early Asian trade USD/JPY hit 79.41, the pair's highest since July 14; the pair subsequently consolidated at 78.40, falling 0.6%.

The pair was likely to find support at 77.01, Thursday's low, and resistance at 79.41, the day's high.

Japanese finance officials have attempted to talk down the local currency, noting that the March 11 earthquake and its negative effects on the economy during the period, don't warrant investor's continued bullish moves on the yen.

Japan's Nikkei Shimbun daily reported that the August 4 intervention by the Bank of Japan to weaken the yen against its counterparts had cost the BOJ USD50 billion.

Currency analysts expected the BOJ gesture to offer only a short-term weakness in the yen in light of an overall positive sentiment on the Japanese currency.

The European Central Bank, earlier in the day, said it was prepared to purchase Italian bonds in return for promises of further financial reforms from Italy, sending the yen lower against its European counterparts.

The yen surrendered ground to both the euro and the British pound with EUR/JPY up 0.67% to hit 111.91, and GBP/JPY rising 0.02% to hit 128.21.

The market was expected to focus on next week's Federal Reserve decision on short-term interest rates for possible changes in U.S. monetary policy.

Forexpros - The Japanese yen advanced against the U.S. dollar Friday, as recent yen-weakening moves by the Bank of Japan failed to reverse a wider trend of upward momentum in the Japanese currency.

In early Asian trade USD/JPY hit 79.41, the pair's highest since July 14; the pair subsequently consolidated at 78.40, falling 0.6%.

The pair was likely to find support at 77.01, Thursday's low, and resistance at 79.41, the day's high.

Japanese finance officials have attempted to talk down the local currency, noting that the March 11 earthquake and its negative effects on the economy during the period, don't warrant investor's continued bullish moves on the yen.

Japan's Nikkei Shimbun daily reported that the August 4 intervention by the Bank of Japan to weaken the yen against its counterparts had cost the BOJ USD50 billion.

Currency analysts expected the BOJ gesture to offer only a short-term weakness in the yen in light of an overall positive sentiment on the Japanese currency.

The European Central Bank, earlier in the day, said it was prepared to purchase Italian bonds in return for promises of further financial reforms from Italy, sending the yen lower against its European counterparts.

The yen surrendered ground to both the euro and the British pound with EUR/JPY up 0.67% to hit 111.91, and GBP/JPY rising 0.02% to hit 128.21.

The market was expected to focus on next week's Federal Reserve decision on short-term interest rates for possible changes in U.S. monetary policy.

WASHINGTON -(Dow Jones)- Orders for U.S. factory goods fell in June for the second time in three months, a sign the anemic economy is causing strains among manufacturers.

Orders for manufactured goods decreased by 0.8% from the prior month to $ 440.69 billion, the Commerce Department said Wednesday.

Aside from the drop in factory orders, an important reading on the nation's service sector fell to its lowest since February 2010. The Institute for Supply Management said Wednesday its non-manufacturing purchasing managers' index slipped to 52.7 in July from 53.3 in June.

Despite a deal in Washington to raise the government debt ceiling and avoid default, stock market prices Wednesday were down, reflecting deepening worry about the overall economy.

"Good economic reports have been few and far between and the slowdown is real, " said Joel Naroff, who runs Naroff Economic Advisors in Holland, Pa. "I don't expect a double-dip, but this economy doesn't need any more speed bumps put in the road."

Overall economic growth was soft in the first half of 2011, as consumers pulled back sharply on their spending. Unemployment in the U.S. is high, and elevated gasoline prices mean consumers have to fork over more of their incomes, which aren't rising much.

The decline in factory orders during June follows a 0.6% increase in May and a drop of 0.9% during April. Economists surveyed by Dow Jones Newswires had forecast a 1.0% drop in overall factory orders in June.

Capital investment on equipment by U.S. businesses rose mildly. A barometer of business spending within the data, non-defense capital goods orders excluding aircraft, increased by 0.4%.

Manufacturing has been a strong part of the economy as it recovers from the recession. But factories have been feeling stress from a slowing economy.

Last week, the government reported orders for long-lasting goods tumbled a second time in three months during June. On Wednesday, the Commerce Department, in its factory report, revised the durable-goods orders drop, to 1.9% from the previously estimated 2.1%.

A report this week suggested manufacturing slowed sharply in July. The ISM's manufacturing index fell to 50.9 from 55.3 in June. The new reading wasn't much above 50, the minimum level that indicates expanding activity in the goods- making sector. Readings below 50 suggest contraction.

WASHINGTON -(Dow Jones)- Orders for U.S. factory goods fell in June for the second time in three months, a sign the anemic economy is causing strains among manufacturers.

Orders for manufactured goods decreased by 0.8% from the prior month to $ 440.69 billion, the Commerce Department said Wednesday.

Aside from the drop in factory orders, an important reading on the nation's service sector fell to its lowest since February 2010. The Institute for Supply Management said Wednesday its non-manufacturing purchasing managers' index slipped to 52.7 in July from 53.3 in June.

Despite a deal in Washington to raise the government debt ceiling and avoid default, stock market prices Wednesday were down, reflecting deepening worry about the overall economy.

"Good economic reports have been few and far between and the slowdown is real, " said Joel Naroff, who runs Naroff Economic Advisors in Holland, Pa. "I don't expect a double-dip, but this economy doesn't need any more speed bumps put in the road."

Overall economic growth was soft in the first half of 2011, as consumers pulled back sharply on their spending. Unemployment in the U.S. is high, and elevated gasoline prices mean consumers have to fork over more of their incomes, which aren't rising much.

The decline in factory orders during June follows a 0.6% increase in May and a drop of 0.9% during April. Economists surveyed by Dow Jones Newswires had forecast a 1.0% drop in overall factory orders in June.

Capital investment on equipment by U.S. businesses rose mildly. A barometer of business spending within the data, non-defense capital goods orders excluding aircraft, increased by 0.4%.

Manufacturing has been a strong part of the economy as it recovers from the recession. But factories have been feeling stress from a slowing economy.

Last week, the government reported orders for long-lasting goods tumbled a second time in three months during June. On Wednesday, the Commerce Department, in its factory report, revised the durable-goods orders drop, to 1.9% from the previously estimated 2.1%.

A report this week suggested manufacturing slowed sharply in July. The ISM's manufacturing index fell to 50.9 from 55.3 in June. The new reading wasn't much above 50, the minimum level that indicates expanding activity in the goods- making sector. Readings below 50 suggest contraction.

--Proceeds will be used to repay short-term debt and for general corporate purposes

--The company last issued debt in February with a $1.1 billion deal

(Updates with launch levels in second paragraph and final risk premiums in third paragraph.)

By Nicole Hong

Of DOW JONES NEWSWIRES

NEW YORK -(Dow Jones)- Kinder Morgan Energy Partners LP (KMP), a subsidiary of energy company Kinder Morgan Inc. (KMI), is planning to issue a two-part $750 million bond offering Wednesday in the U.S. market, according to a person familiar with the deal.

The deal comprises a $375 million 10.5-year tranche and a $375 million 30-year tranche.

The 10.5-year piece launched at the narrow end of price guidance, suggesting good demand, with a risk premium of 157 basis points over Treasurys. The 30-year piece launched with a risk premium of 180 basis points over Treasurys, directly in line with price guidance.

Pricing on the senior unsecured notes is expected later Wednesday.

Leading the debt sale are Bank of America Merrill Lynch, Barclays Capital and Citigroup Inc. (C).

Proceeds will be used to repay short-term debt and for general corporate purposes.

The deal has been rated Baa2 by Moody's Investors Service and BBB by Standard & Poor's.

Kinder Morgan Energy Partners last issued debt in February with a $1.1 billion deal, according to data provider Dealogic.

Headquartered in Houston, Kinder Morgan Energy Partners is a pipeline transportation and energy-storage company in North America. Two weeks ago, it reported quarterly earnings dropped 36% to $230.5 million from $361.2 million a year earlier.

--Proceeds will be used to repay short-term debt and for general corporate purposes

--The company last issued debt in February with a $1.1 billion deal

(Updates with launch levels in second paragraph and final risk premiums in third paragraph.)

By Nicole Hong

Of DOW JONES NEWSWIRES

NEW YORK -(Dow Jones)- Kinder Morgan Energy Partners LP (KMP), a subsidiary of energy company Kinder Morgan Inc. (KMI), is planning to issue a two-part $750 million bond offering Wednesday in the U.S. market, according to a person familiar with the deal.

The deal comprises a $375 million 10.5-year tranche and a $375 million 30-year tranche.

The 10.5-year piece launched at the narrow end of price guidance, suggesting good demand, with a risk premium of 157 basis points over Treasurys. The 30-year piece launched with a risk premium of 180 basis points over Treasurys, directly in line with price guidance.

Pricing on the senior unsecured notes is expected later Wednesday.

Leading the debt sale are Bank of America Merrill Lynch, Barclays Capital and Citigroup Inc. (C).

Proceeds will be used to repay short-term debt and for general corporate purposes.

The deal has been rated Baa2 by Moody's Investors Service and BBB by Standard & Poor's.

Kinder Morgan Energy Partners last issued debt in February with a $1.1 billion deal, according to data provider Dealogic.

Headquartered in Houston, Kinder Morgan Energy Partners is a pipeline transportation and energy-storage company in North America. Two weeks ago, it reported quarterly earnings dropped 36% to $230.5 million from $361.2 million a year earlier.

Coca-Cola Co. (KO) said it plans to offer $2 billion of senior notes as the beverage company aims to raise proceeds to fund an exchange offer of several series of notes.

The company intends to sell $1 billion of notes due in 2016 and another $1 billion to mature in 2021, saying the proceeds would be used to fund an exchange offer of up to $2 billion of notes issued by a subsidiary, Coca-Cola Refreshments USA Inc.

The maturity dates of the exchange offer vary from as early as 2012 to as late as 2036. The early participation payment per $1,000 principal amount of old notes accepted for exchange was generally set at $40, although it was $10 for two series of notes due in 2012.

The exchange offer expires at midnight EDT on Aug. 30, unless otherwise extended. A number of companies are using the record-low interest-rate environment to cut borrowing costs, although Coca-Cola didn't detail why it was launching the offer.

Both tranches launched at the narrow end of price guidance, suggesting good demand. The five-year notes launched with a risk premium of 57 basis points over Treasurys and the 10-year notes with a risk premium of 72 basis points over Treasurys.

This is the first time Coca-Cola has issued debt this year, according to data provider Dealogic. The company's last debt offering was for $4.5 billion in November 2010.

The deal has been rated Aa3 by Moody's Investors Service and A+ by Standard & Poor's.

Last month, Coca-Cola reported its second-quarter earnings rose 18%, boosted by the company's recent bottler acquisition and strong volume growth overseas. But results were muted closer to home due to the struggling economy.

Coca-Cola Co. (KO) said it plans to offer $2 billion of senior notes as the beverage company aims to raise proceeds to fund an exchange offer of several series of notes.

The company intends to sell $1 billion of notes due in 2016 and another $1 billion to mature in 2021, saying the proceeds would be used to fund an exchange offer of up to $2 billion of notes issued by a subsidiary, Coca-Cola Refreshments USA Inc.

The maturity dates of the exchange offer vary from as early as 2012 to as late as 2036. The early participation payment per $1,000 principal amount of old notes accepted for exchange was generally set at $40, although it was $10 for two series of notes due in 2012.

The exchange offer expires at midnight EDT on Aug. 30, unless otherwise extended. A number of companies are using the record-low interest-rate environment to cut borrowing costs, although Coca-Cola didn't detail why it was launching the offer.

Both tranches launched at the narrow end of price guidance, suggesting good demand. The five-year notes launched with a risk premium of 57 basis points over Treasurys and the 10-year notes with a risk premium of 72 basis points over Treasurys.

This is the first time Coca-Cola has issued debt this year, according to data provider Dealogic. The company's last debt offering was for $4.5 billion in November 2010.

The deal has been rated Aa3 by Moody's Investors Service and A+ by Standard & Poor's.

Last month, Coca-Cola reported its second-quarter earnings rose 18%, boosted by the company's recent bottler acquisition and strong volume growth overseas. But results were muted closer to home due to the struggling economy.

WASHINGTON -(Dow Jones)- The U.S. Food and Drug Administration said Wednesday long-term treatment with high doses of the antifungal drug fluconazole in the first trimester of pregnancy might cause birth defects.

Fluconazole is marketed by several generic drug companies and under the brand name Diflucan by Pfizer Inc. (PFE). The product is used to treat certain kinds of yeast infections and meningitis caused by a type of fungus. Fluconazole is also used to prevent yeast infections in patients being treated with chemotherapy or radiation before a bone-marrow transplant.

The FDA said that the typical one-time, 150 milligram dose used to treat vaginal yeast infections is not associated with a risk of birth defects.

However, there have been at least five reported cases of birth defects, that include facial abnormalities, seen in infants whose mothers were treated with 400-to-800 milligrams of fluconazole per day during the first trimester of pregnancy.

The agency changed the pregnancy category for most uses of fluconazole to " pregnancy category D" which means there's evidence of fetal risk based on human data, but the potential benefits from use of the drug in pregnant women with serious or life-threatening conditions may be acceptable, according to FDA.

A pregnancy category appears on drug labels written for health-care professionals. The agency said the category wasn't being changed for the 150 milligram dose used to treat vaginal yeast infections.

WASHINGTON -(Dow Jones)- The U.S. Food and Drug Administration said Wednesday long-term treatment with high doses of the antifungal drug fluconazole in the first trimester of pregnancy might cause birth defects.

Fluconazole is marketed by several generic drug companies and under the brand name Diflucan by Pfizer Inc. (PFE). The product is used to treat certain kinds of yeast infections and meningitis caused by a type of fungus. Fluconazole is also used to prevent yeast infections in patients being treated with chemotherapy or radiation before a bone-marrow transplant.

The FDA said that the typical one-time, 150 milligram dose used to treat vaginal yeast infections is not associated with a risk of birth defects.

However, there have been at least five reported cases of birth defects, that include facial abnormalities, seen in infants whose mothers were treated with 400-to-800 milligrams of fluconazole per day during the first trimester of pregnancy.

The agency changed the pregnancy category for most uses of fluconazole to " pregnancy category D" which means there's evidence of fetal risk based on human data, but the potential benefits from use of the drug in pregnant women with serious or life-threatening conditions may be acceptable, according to FDA.

A pregnancy category appears on drug labels written for health-care professionals. The agency said the category wasn't being changed for the 150 milligram dose used to treat vaginal yeast infections.

Economic net income--a metric analysts monitor that reflects private-equity firms' underlying operations and excludes special charges such as those linked to KKR's initial public offering--fell to 36 cents a share from 48 cents. Analysts polled by Thomson Reuters had expected earnings of 40 cents a share on revenue of $195 million.

Profits calculated on generally accepted accounted principles rose 32% to $ 39.6 million on higher assets under management and a 35% rise in revenue to $ 117.6 million.

KKR's earnings miss highlights volatilities in reporting marked-to-market values of portfolios at a time when markets have steadied following the huge plunge and rebound of the financial crisis.

Gains from KKR's investments in underlying funds and co-investments fell to $ 150 million from a $255 million a year ago on "less significant appreciation" in assets than in the year-earlier period, thus hurting economic net income.

Its private-equity portfolio appreciated by 3.8% in the second quarter and 10.1% in the first half, coming off the extremely high returns of more than 30% last year.

"Our private equity investments outperformed the S&P 500 by nearly 400 basis points for the quarter," said Henry R. Kravis and George R. Roberts, co- founders, co-chairmen, and co-chief executives in a statement.

But recent market volatilities may spell further woes in upcoming earnings, as share prices of publicly listed portfolio companies take a hit.

During a conference call to discuss the results, executives said hospital operator HCA Holdings Inc.'s (HCA) 30% plunge in share price since the end of the second quarter, if booked on the balance sheet right now, would be reflected as a loss of around $150 million in fair value and $69 million in performance fee or "carry."

"HCA is still well over three times its cost," said Craig Larson, KKR's head of investor relations.

But overall, KKR said it expects to benefit from choppy market conditions as institutional investors switch to alternative investments from traditional means of trading.

"Maybe it's counterintuitive. But when everybody's scared, we get pretty excited," said Scott Nuttall, KKR's head of global capital and asset management. "This environment is creating some pretty interesting supply-demand imbalances and we're stepping into that imbalance and making some pretty investments."

He highlighted opportunities in European banks' sales of assets and lending to middle-market companies, where banks and traditional sources of financing are " gone or impaired."

The company, which switched the listing of its shares to the New York Stock Exchange in July 2010 from Euronext Amsterdam, had $61.9 billion in assets under management as of June 30, up 14% from a year ago, on continued investment appreciation and new capital raised.

It also reported seven sales of companies, expected to realize more than $2 billion, or 2.4 times its initial investments. Executives said an announced sale of Hilcorp Resources Holdings LP is expected to generate a cash distribution of 6 cents a share in the fourth quarter.

KKR, which still has $13.7 billion in uncalled commitments or "dry powder" for future investments, said its new long-short equity hedge fund started to accept investors' capital this month. The team is run by former Goldman Sachs Group Inc. (GS) proprietary traders.

Economic net income--a metric analysts monitor that reflects private-equity firms' underlying operations and excludes special charges such as those linked to KKR's initial public offering--fell to 36 cents a share from 48 cents. Analysts polled by Thomson Reuters had expected earnings of 40 cents a share on revenue of $195 million.

Profits calculated on generally accepted accounted principles rose 32% to $ 39.6 million on higher assets under management and a 35% rise in revenue to $ 117.6 million.

KKR's earnings miss highlights volatilities in reporting marked-to-market values of portfolios at a time when markets have steadied following the huge plunge and rebound of the financial crisis.

Gains from KKR's investments in underlying funds and co-investments fell to $ 150 million from a $255 million a year ago on "less significant appreciation" in assets than in the year-earlier period, thus hurting economic net income.

Its private-equity portfolio appreciated by 3.8% in the second quarter and 10.1% in the first half, coming off the extremely high returns of more than 30% last year.

"Our private equity investments outperformed the S&P 500 by nearly 400 basis points for the quarter," said Henry R. Kravis and George R. Roberts, co- founders, co-chairmen, and co-chief executives in a statement.

But recent market volatilities may spell further woes in upcoming earnings, as share prices of publicly listed portfolio companies take a hit.

During a conference call to discuss the results, executives said hospital operator HCA Holdings Inc.'s (HCA) 30% plunge in share price since the end of the second quarter, if booked on the balance sheet right now, would be reflected as a loss of around $150 million in fair value and $69 million in performance fee or "carry."

"HCA is still well over three times its cost," said Craig Larson, KKR's head of investor relations.

But overall, KKR said it expects to benefit from choppy market conditions as institutional investors switch to alternative investments from traditional means of trading.

"Maybe it's counterintuitive. But when everybody's scared, we get pretty excited," said Scott Nuttall, KKR's head of global capital and asset management. "This environment is creating some pretty interesting supply-demand imbalances and we're stepping into that imbalance and making some pretty investments."

He highlighted opportunities in European banks' sales of assets and lending to middle-market companies, where banks and traditional sources of financing are " gone or impaired."

The company, which switched the listing of its shares to the New York Stock Exchange in July 2010 from Euronext Amsterdam, had $61.9 billion in assets under management as of June 30, up 14% from a year ago, on continued investment appreciation and new capital raised.

It also reported seven sales of companies, expected to realize more than $2 billion, or 2.4 times its initial investments. Executives said an announced sale of Hilcorp Resources Holdings LP is expected to generate a cash distribution of 6 cents a share in the fourth quarter.

KKR, which still has $13.7 billion in uncalled commitments or "dry powder" for future investments, said its new long-short equity hedge fund started to accept investors' capital this month. The team is run by former Goldman Sachs Group Inc. (GS) proprietary traders.

Tuesday, 2 August 2011

In some senses, paying taxes is like buying shares of a company – taxes are an investment in the wellbeing of a country and its citizens. It can also provide a sense of ownership and involvement in the state of the government and society.

By the same token, one would hope that the government is trying to maximize value for its shareholders – its tax-paying and tax-exempt citizenry. This might include constantly improving roads, fire and police departments, education, pensions, and a whole host of other services. This is why the recent debt ceiling debacle has been particularly frustrating for this author.

The decision to cut budgets without raising taxes seems to imply that our elected officials would rather bail on its obligations to their most vulnerable constituents – those that rely on public education and transportation for their livelihoods; the retired; the poor and huddled masses – instead of asking the most fortunate members of the populace to lend a helping hand.

Arguing that low marginal tax rates are essential to spur growth overlook the fact that the remarkable growth in the 1960s, still considered a benchmark for potential GDP, occurred in spite of a 91 percent income tax on the highest earners.

By pandering to the strongest members of society and abandoning the weakest, the American government may have squandered the American dream – the idea that meritocracy and liberalism could afford social and economic mobility to all of America’s citizens; a belief in a city upon a hill, shining like a beacon for the rest of the world to behold in wonder, like Lady Liberty herself.

Instead, the government is near broke. According to the Treasury department, the total amount of taxpayers’ money left in the coffers amounts to little more than $67bn, around half of what was available as recently as mid-July.

A number of companies have handled their shareholders’ money much more responsibly than the American government. Here is a list of the ten companies that have more cash at their disposal than Uncle Sam does.

Note: Because many of the companies listed below are foreign/ADR stocks, there could be a mismatch between market cap and cash & equivalents figures. Cash & equivalents reflect all of the cash held by the company, globally. Market cap might only reflect the total value of shares listed in American exchanges, which would not include the value of shares listed in other countries.

1. Banco Bilbao Vizcaya Argentaria SA (BBVA): Money Center Banks industry with a market cap of $47.96B. Cash and Equivalents at $512.07B. It is a diversified international financial group, with strengths in the traditional banking businesses of retail banking, asset management, private banking and wholesale banking. It also has investments in some of Spain’s companies. During the year ended December 31, 2009, BBVA focused its operations on six major business areas: Spain and Portugal, Wholesale Banking and Asset Management, Mexico, The United States, South America and Corporate Activities.

2. UBS AG (UBS): Investment Services industry with a market cap of $62.41B. Cash and Equivalents at $165.15B. It offers a combination of wealth management, asset management and investment banking services on a global and regional basis. As of December 31, 2009, it operated about 973 business and banking locations worldwide, of which about 42% were in Switzerland, 41% in the Americas, 12% in the rest of Europe, Middle East and Africa, and 5% in Asia-Pacific.

3. Barclays PLC (BCS): Money Center Banks industry with a market cap of $43.75B. Cash and Equivalents at $160.26B. It is engaged in retail banking, credit cards, corporate and investment banking and wealth management. It operates through branches, offices and subsidiaries in the United Kingdom and overseas.

4. General Electric Company (GE): Conglomerates industry with a market cap of $190.49B. Cash and Equivalents at $136.4B. It is a diversified technology and financial services corporation. Its products and services range from aircraft engines, power generation, water processing, and household appliances to medical imaging, business and consumer financing and industrial products. Its segments include Energy Infrastructure, Technology Infrastructure, NBC Universal, GE Capital and Home & Business Solutions.

5. Banco Santander, S.A. (STD): Regional Banks industry with a market cap of $85.06B. Cash and Equivalents at $123.59B. It operates principally in Spain, the United Kingdom, Portugal, other European countries, Brazil and other Latin American countries and the United States, offering a range of financial products. It operates in four segments: Continental Europe, United Kingdom, Latin America and Sovereign.

6. Bank of America Corporation (BAC): Money Center Banks industry with a market cap of $99.59B. Cash and Equivalents at $119.53B. It serves individual consumers, small and middle market businesses, corporations and governments with a range of banking, investing, asset management and other financial and risk management products and services. It provides a range of banking and non-banking financial services and products through six business segments: Deposits, Global Card Services, Home Loans & Insurance, Global Commercial Banking, Global Banking & Markets (GBAM) and Global Wealth & Investment Management (GWIM), with the remaining operations recorded in All Other.

7. Royal Bank of Scotland Group PLC (RBS): Money Center Banks industry with a market cap of $33.45B. Cash and Equivalents at $97.82B. It operates in the United Kingdom, the United States, and internationally through its two principal subsidiaries, The Royal Bank of Scotland plc and National Westminster Bank Plc. Its business segments include: UK Retail, UK Corporate, Wealth, Global Banking and Markets (GBM), Global Transaction Services, Ulster Bank, US Retail and Commercial and RBS Insurance.

8. Lloyds TSB Group PLC (LYG): Money Center Banks industry with a market cap of $47.25B. Cash and Equivalents at $88.94B. It provides a range of banking and financial services, primarily in the United Kingdom, to personal and corporate customers. Its main business activities are retail, commercial and corporate banking, general insurance, and life, pensions and investment provision. It also operates an international banking business with a global footprint in over 30 countries.

9. Credit Suisse Group AG (CS): Investment Services industry with a market cap of $42.34B. Cash and Equivalents at $87.16B. It provides advisory services, solutions and products to companies, institutional clients and private clients globally, as well as to the retail clients in Switzerland. It operates in three business segments: Private Banking, Investment Banking and Asset Management.

10. HSBC Holdings PLC (HBC): Regional Banks industry with a market cap of $177.94B. Cash and Equivalents at $71.75B. It is a global banking and financial services organizations. As of December 31, 2010, it provided a range of financial services to around 95 million customers through two customer groups, Personal Financial Services (PFS), including consumer finance, and Commercial Banking (CMB), and two global businesses, Global Banking and Markets (GB&M), and Global Private Banking (GPB). As of December 31, 2010, the Company had an international network of some 7,500 offices in 87 countries and territories in six geographical regions; Europe, Hong Kong, Rest of Asia-Pacific, the Middle East, North America and Latin America.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

In some senses, paying taxes is like buying shares of a company – taxes are an investment in the wellbeing of a country and its citizens. It can also provide a sense of ownership and involvement in the state of the government and society.

By the same token, one would hope that the government is trying to maximize value for its shareholders – its tax-paying and tax-exempt citizenry. This might include constantly improving roads, fire and police departments, education, pensions, and a whole host of other services. This is why the recent debt ceiling debacle has been particularly frustrating for this author.

The decision to cut budgets without raising taxes seems to imply that our elected officials would rather bail on its obligations to their most vulnerable constituents – those that rely on public education and transportation for their livelihoods; the retired; the poor and huddled masses – instead of asking the most fortunate members of the populace to lend a helping hand.

Arguing that low marginal tax rates are essential to spur growth overlook the fact that the remarkable growth in the 1960s, still considered a benchmark for potential GDP, occurred in spite of a 91 percent income tax on the highest earners.

By pandering to the strongest members of society and abandoning the weakest, the American government may have squandered the American dream – the idea that meritocracy and liberalism could afford social and economic mobility to all of America’s citizens; a belief in a city upon a hill, shining like a beacon for the rest of the world to behold in wonder, like Lady Liberty herself.

Instead, the government is near broke. According to the Treasury department, the total amount of taxpayers’ money left in the coffers amounts to little more than $67bn, around half of what was available as recently as mid-July.

A number of companies have handled their shareholders’ money much more responsibly than the American government. Here is a list of the ten companies that have more cash at their disposal than Uncle Sam does.

Note: Because many of the companies listed below are foreign/ADR stocks, there could be a mismatch between market cap and cash & equivalents figures. Cash & equivalents reflect all of the cash held by the company, globally. Market cap might only reflect the total value of shares listed in American exchanges, which would not include the value of shares listed in other countries.

1. Banco Bilbao Vizcaya Argentaria SA (BBVA): Money Center Banks industry with a market cap of $47.96B. Cash and Equivalents at $512.07B. It is a diversified international financial group, with strengths in the traditional banking businesses of retail banking, asset management, private banking and wholesale banking. It also has investments in some of Spain’s companies. During the year ended December 31, 2009, BBVA focused its operations on six major business areas: Spain and Portugal, Wholesale Banking and Asset Management, Mexico, The United States, South America and Corporate Activities.

2. UBS AG (UBS): Investment Services industry with a market cap of $62.41B. Cash and Equivalents at $165.15B. It offers a combination of wealth management, asset management and investment banking services on a global and regional basis. As of December 31, 2009, it operated about 973 business and banking locations worldwide, of which about 42% were in Switzerland, 41% in the Americas, 12% in the rest of Europe, Middle East and Africa, and 5% in Asia-Pacific.

3. Barclays PLC (BCS): Money Center Banks industry with a market cap of $43.75B. Cash and Equivalents at $160.26B. It is engaged in retail banking, credit cards, corporate and investment banking and wealth management. It operates through branches, offices and subsidiaries in the United Kingdom and overseas.

4. General Electric Company (GE): Conglomerates industry with a market cap of $190.49B. Cash and Equivalents at $136.4B. It is a diversified technology and financial services corporation. Its products and services range from aircraft engines, power generation, water processing, and household appliances to medical imaging, business and consumer financing and industrial products. Its segments include Energy Infrastructure, Technology Infrastructure, NBC Universal, GE Capital and Home & Business Solutions.

5. Banco Santander, S.A. (STD): Regional Banks industry with a market cap of $85.06B. Cash and Equivalents at $123.59B. It operates principally in Spain, the United Kingdom, Portugal, other European countries, Brazil and other Latin American countries and the United States, offering a range of financial products. It operates in four segments: Continental Europe, United Kingdom, Latin America and Sovereign.

6. Bank of America Corporation (BAC): Money Center Banks industry with a market cap of $99.59B. Cash and Equivalents at $119.53B. It serves individual consumers, small and middle market businesses, corporations and governments with a range of banking, investing, asset management and other financial and risk management products and services. It provides a range of banking and non-banking financial services and products through six business segments: Deposits, Global Card Services, Home Loans & Insurance, Global Commercial Banking, Global Banking & Markets (GBAM) and Global Wealth & Investment Management (GWIM), with the remaining operations recorded in All Other.

7. Royal Bank of Scotland Group PLC (RBS): Money Center Banks industry with a market cap of $33.45B. Cash and Equivalents at $97.82B. It operates in the United Kingdom, the United States, and internationally through its two principal subsidiaries, The Royal Bank of Scotland plc and National Westminster Bank Plc. Its business segments include: UK Retail, UK Corporate, Wealth, Global Banking and Markets (GBM), Global Transaction Services, Ulster Bank, US Retail and Commercial and RBS Insurance.

8. Lloyds TSB Group PLC (LYG): Money Center Banks industry with a market cap of $47.25B. Cash and Equivalents at $88.94B. It provides a range of banking and financial services, primarily in the United Kingdom, to personal and corporate customers. Its main business activities are retail, commercial and corporate banking, general insurance, and life, pensions and investment provision. It also operates an international banking business with a global footprint in over 30 countries.

9. Credit Suisse Group AG (CS): Investment Services industry with a market cap of $42.34B. Cash and Equivalents at $87.16B. It provides advisory services, solutions and products to companies, institutional clients and private clients globally, as well as to the retail clients in Switzerland. It operates in three business segments: Private Banking, Investment Banking and Asset Management.

10. HSBC Holdings PLC (HBC): Regional Banks industry with a market cap of $177.94B. Cash and Equivalents at $71.75B. It is a global banking and financial services organizations. As of December 31, 2010, it provided a range of financial services to around 95 million customers through two customer groups, Personal Financial Services (PFS), including consumer finance, and Commercial Banking (CMB), and two global businesses, Global Banking and Markets (GB&M), and Global Private Banking (GPB). As of December 31, 2010, the Company had an international network of some 7,500 offices in 87 countries and territories in six geographical regions; Europe, Hong Kong, Rest of Asia-Pacific, the Middle East, North America and Latin America.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

BestWeek Asia/Pacific Insurance NewsletterDelivers the latest insurance news from the Asia/Pacific delivered straight to your inbox every week from A.M. Best Company, a worldwide rating and information agency with more than 100 years of experience covering the insurance industry. >> Professional PensionsUK's leading weekly publication for the occupational pensions industry. >>

BestWeek Asia/Pacific Insurance Newsletter
Delivers the latest insurance news from the Asia/Pacific delivered straight to your inbox every week from A.M. Best Company, a worldwide rating and information agency with more than 100 years of experience covering the insurance industry. >>
Professional Pensions
UK's leading weekly publication for the occupational pensions industry. >>

Monster ( MWW ) recently announced its Q2 earnings results. Consistent with our preview note on Monster , the company witnessed solid growth in its career services business that expanded 28% over last year. The increase is due to multiple factors, including a complete integration with Yahoo's ( YHOO ) HotJobs, solid international growth and indications of increased hiring in the U.S. The company's Achilles' heel remains its Internet advertising & fees business, which has posted revenues that are relatively flat over the last year owing to reduced lead generation and a decline in military recruitment . We also want to see more convincing evidence that Monster is benefiting from the uptick in the N. America business as profit margins suffered in this area vs. last year comparables. Monster competes in the online job search market with niche players like careerbuilder.com and jobcentral.com and faces growing competition from social networks like LinkedIn ( LNKD ), Facebook and Craigslist.

We currently maintain a near $13 price estimate for Monster stock , which is about 10% above the current market price. The revised price includes adjustments made to our forecasts for EBITDA margin and page views of Monster's website as well as changes to the company's net cash/debt position.

International Career Services Shows Strength

The major winner for this quarter was the international segment of Monster's core career services business, which saw an increase of revenue growth of 30%. The increase in site traffic through Yahoo's HotJobs is a major contributor to this increase. The EBITDA margin for the international business grew to 15.5% in Q2 from 2.8% a year ago.

Revenues also grew organically as Monster launched its Power Resume Search ( PRS ) tool in Germany. Going forward, we expect further growth in international markets as Yahoo traffic is further directed towards Monster. This should be further aided by Monster's new portfolio of tools to counter competition from social networks, such as Monster's Facebook app BeKnown. ((Monster Launches First Truly Global Professional Networking App for Facebook with Introduction of BeKnown, press release, June 27th, 2011)) We thus expect to see some significant upside in job listings for international career services for Q3 and Q4, which should lead to division revenues in the +$460 million bracket for this division.

However to win investors' confidence the company will need to do more to show that its core U.S. business can scale and maintain its profit margins. Despite solid 26% revenue growth for N. America, its operating profit was down 8.3% (though EBITDA was up 5%).

Monster ( MWW ) recently announced its Q2 earnings results. Consistent with our preview note on Monster , the company witnessed solid growth in its career services business that expanded 28% over last year. The increase is due to multiple factors, including a complete integration with Yahoo's ( YHOO ) HotJobs, solid international growth and indications of increased hiring in the U.S. The company's Achilles' heel remains its Internet advertising & fees business, which has posted revenues that are relatively flat over the last year owing to reduced lead generation and a decline in military recruitment . We also want to see more convincing evidence that Monster is benefiting from the uptick in the N. America business as profit margins suffered in this area vs. last year comparables. Monster competes in the online job search market with niche players like careerbuilder.com and jobcentral.com and faces growing competition from social networks like LinkedIn ( LNKD ), Facebook and Craigslist.

We currently maintain a near $13 price estimate for Monster stock , which is about 10% above the current market price. The revised price includes adjustments made to our forecasts for EBITDA margin and page views of Monster's website as well as changes to the company's net cash/debt position.

International Career Services Shows Strength

The major winner for this quarter was the international segment of Monster's core career services business, which saw an increase of revenue growth of 30%. The increase in site traffic through Yahoo's HotJobs is a major contributor to this increase. The EBITDA margin for the international business grew to 15.5% in Q2 from 2.8% a year ago.

Revenues also grew organically as Monster launched its Power Resume Search ( PRS ) tool in Germany. Going forward, we expect further growth in international markets as Yahoo traffic is further directed towards Monster. This should be further aided by Monster's new portfolio of tools to counter competition from social networks, such as Monster's Facebook app BeKnown. ((Monster Launches First Truly Global Professional Networking App for Facebook with Introduction of BeKnown, press release, June 27th, 2011)) We thus expect to see some significant upside in job listings for international career services for Q3 and Q4, which should lead to division revenues in the +$460 million bracket for this division.

However to win investors' confidence the company will need to do more to show that its core U.S. business can scale and maintain its profit margins. Despite solid 26% revenue growth for N. America, its operating profit was down 8.3% (though EBITDA was up 5%).

Not exactly. But unfortunately, that's how many new investors think of the stock market -- as a short-term investment vehicle that either brings huge monetary gains or devastating losses. With that attitude, the stock market is as reliable a form of investment as a game of roulette. But the more you learn about stocks, and the more you understand the true nature of stock market investment, the better and smarter you'll manage your money.

The stock market can be intimidating, but a little information can help ease your fears. Let's start with some basic definitions. A share of stock is literally a share in the ownership of a company. When you buy a share of stock, you're entitled to a small fraction of the assets and earnings of that company. Assets include everything the company owns (buildings, equipment, trademarks), and earnings are all of the money the company brings in from selling its products and services.

Why would a company want to share its assets and earnings with the general public? Because it needs the money, of course. Companies only have two ways to raise money to cover start-up costs or expand the business: It can either borrow money (a process known as debt financing) or sell stock (also known as equity financing).

The disadvantage of borrowing money is that the company has to pay back the loan with interest. By selling stock, however, the company gets money with fewer strings attached. There is no interest to pay and no requirement to even pay the money back at all. Even better, equity financing distributes the risk of doing business among a large pool of investors (stockholders). If the company fails, the founders don't lose all of their money; they lose several thousand smaller chunks of other people's money.

Perhaps the best way to explain how stocks and the stock market work is to use an example. For the remainder of this article, we'll use a hypothetical pizza business to help explain the basic principles behind issuing and buying stock. We'll start on the next page with the reasons why a restaurant owner would issue stock to the public.

Not exactly. But unfortunately, that's how many new investors think of the stock market -- as a short-term investment vehicle that either brings huge monetary gains or devastating losses. With that attitude, the stock market is as reliable a form of investment as a game of roulette. But the more you learn about stocks, and the more you understand the true nature of stock market investment, the better and smarter you'll manage your money.

The stock market can be intimidating, but a little information can help ease your fears. Let's start with some basic definitions. A share of stock is literally a share in the ownership of a company. When you buy a share of stock, you're entitled to a small fraction of the assets and earnings of that company. Assets include everything the company owns (buildings, equipment, trademarks), and earnings are all of the money the company brings in from selling its products and services.

Why would a company want to share its assets and earnings with the general public? Because it needs the money, of course. Companies only have two ways to raise money to cover start-up costs or expand the business: It can either borrow money (a process known as debt financing) or sell stock (also known as equity financing).

The disadvantage of borrowing money is that the company has to pay back the loan with interest. By selling stock, however, the company gets money with fewer strings attached. There is no interest to pay and no requirement to even pay the money back at all. Even better, equity financing distributes the risk of doing business among a large pool of investors (stockholders). If the company fails, the founders don't lose all of their money; they lose several thousand smaller chunks of other people's money.

Perhaps the best way to explain how stocks and the stock market work is to use an example. For the remainder of this article, we'll use a hypothetical pizza business to help explain the basic principles behind issuing and buying stock. We'll start on the next page with the reasons why a restaurant owner would issue stock to the public.